Somewhere in there is something that you will probably need in the next few months, and that is why the expansion of the bargain-basement discount stores in Australia is attracting the attention of the big store chains such as Kmart and Big W.

Instead of sticking with small format stores that stock say, 7000 items, newer players like the NZ-based Warehouse Group with its Yellow Sheds are rolling out big-box formats that may stock as many as 30,000 items.

They have expanded their traditional ranges beyond the no-brand impulse purchases like pens, balloons and plastic toys, and now offer many of the categories sold by Kmart and Big W, such as casual clothing and household consumables.

But more than 3½ years after Warehouse bought 117 Clint's Crazy Bargains and Silly Solly's outlets and rebranded them as Yellow Sheds, it has failed to make headway in Australia.

Warehouse bungled its merchandise selection, bought too much stock that it could not sell, and is now faced with trying to clear excess stock - a process that will take some months.

Yellow Sheds' losses for the 26 weeks to February 1 totalled $12.9 million, a big reversal on the $6 million profit reported a year ago, and Warehouse expects full-year losses in Australia could hit $40 million.

The man charged with fixing the Australian operations, Warehouse's general manager in Australia, Ian Tsicalas, was not available for comment this week.

That competition has been precipitated, he said, in part by Warehouse as it tries to rev up its Yellow Sheds outlets and partly by the one-third appreciation in the Australian dollar which has helped push down prices across the retail industry.

"Put the two together," Mr Perlstein said. "I mean we have never seen a dollar go up that quickly."

But some retail analysts claim the discount variety market is no more competitive than it has ever been and that Miller's and Warehouse are trying to throw the spotlight off their own internal problems.

Bargain-basement stores traditionally have operated as impulse purchase stores. As Mr Perlstein said, dollar-stores are a great treat for harassed parents - they sell "shut-up toys", the kind of plastic junk that keeps children quiet just long enough for the family to trawl a shopping mall.

Some, like The Reject Shop with more than 100 outlets, are sticking to the traditional formats, staying well clear of the ground occupied by Big W and Kmart, and opting always for small sites passed by many potential customers.

Others, such as Yellow Sheds and Miller's Go-Lo and Crazy Clark's, now appear to be testing the lower limits of a market dominated by Big W and Kmart.

Steve Ogden-Barnes, a director at Monash University's Australian Centre for Retail Studies, said bargain-basement stores, over time, tend to gravitate up the retail chain.

But as bargain-basement stores shifted closer to the Big W/Kmart model, they were increasingly likely to get hit by the competitive tensions between the two big chains.

"They may be moving into a division that is not going to be so beneficial for them," Mr Ogden-Barnes said. "As Big W and Kmart take each other on, they (bargain stores) will be in the firing line."

At the same time, Warehouse and others trying to take on Big W and Kmart face a critical obstacle.

They must source non-branded merchandise at a significant discount to what Big W or Kmart - with their formidable buying power - pay for branded goods.

But as Big W and Kmart become more efficient, by lowering their internal costs and tightening supply chain arrangements, they exert yet more pressure on their own suppliers for discounts and special promotions.